China Injury Case: Key to Global Balance?

Concerned about rebalancing of the world economy? Then set aside the G-20 and all the complicated wrangling over exchange rates and ponder instead the story of a one-handed former Chinese factory worker.

Associated Press

Chinese workers: When will they feel safe enough to spend?

Last year, Ruan Libing’s left hand was crushed in a molding machine while he worked the night shift at a factory making household appliances in Zhuhai, southern China. It had to be amputated. Without expensive surgery to create a prosthetic hand, the 21-year-old will likely never get factory work again and so faces a life with little or no income.

As compensation, Ruan initially received 90,000 yuan, or around $13,500 — the equivalent of 170 yuan a month for the rest of his working life, or about a tenth of the salary he was earning for a 60-hour work week. Yet his employer, Elec-Tech International Co. — a Shenzhen-listed manufacturer whose customers include Wal-Mart Stores Inc — was fully compliant with Chinese law, which prescribes different lump-sum compensation payouts based solely on injury type with no adjustment for the age of the victim or for the degree of employer negligence.

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Magnified across an 800-million-strong labor force, this system feeds into the problem of global imbalances – or, put another way, the notion that Americans spend too much and Chinese too little. That’s because it encourages China’s workers to save in case they suffer an income-losing injury. Along with China’s woefully limited health insurance and retirement plans, the inadequate workers compensation model is a big factor behind its 30%-plus household savings rate.

Typically, injured Chinese workers accept their measly payout and leave. But Ruan’s case is different, and represents a change that could benefit the entire world.

For two months, Ruan kept his accident quiet to avoid upsetting his parents, who live in a cowshed in a village in Hunan Province and earn around 500 yuan a year. But eventually he broke down and told a cousin, who contacted an expatriate family she knew through her work as a travel agent in Shenzhen. They referred her to China Labor Bulletin, a Hong Kong-based advocacy group, which immediately adopted the case.

CLB found Ruan a lawyer, who filed a lawsuit against Elec-Tech in a Zhuhai District Court in July, alleging gross negligence on the company’s part. It was the first time a Chinese worker had brought such a suit against an employer – a test, as CLB described it, of “the inadequacies in China’s compensation system.”

The judge rejected the claim, but Ruan’s lawyer appealed to a higher court. Then the case got a big publicity boost: Wal-Mart sprung two surprise safety audits on Elec-Tech’s facilities to identify 55 incidents of worker injuries in the preceding 12 months, including other severed hands. The giant U.S. retailer found that numerous machines were inadequately equipped with safety guards and infra-red detectors and asked that half the stamping machines be turned off until they were repaired or replaced.

Elec-Tech moved to repair the machines and entered into negotiations with Ruan, who asked for a settlement of 260,000 yuan above the 90,000 already paid.

“Although we have fulfilled our responsibility according to the law, he was our employee and he was injured during work so we are considering giving him more compensation,” a spokesman for the company told China Real Time when asked about the case earlier this week.

On Wednesday, Ruan accepted a counteroffer from Elec-Tech for an additional 130,000 yuan on condition that he drops the lawsuit.

An extra $20,000 for 44 years of lost income might not seem like much, but what matters is that a deal was reached, with a payout significantly higher than the previous one.

The question is whether such advances will be accompanied by reform of the workers compensation system that provides real security for the future — security that might free working class Chinese to finally spend some of the money they’ve been stashing away.

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